(Adds strategist quotes and details throughout; updates prices) * Canadian dollar falls 0.3% against the greenback * Canada payroll employment rises 25,900 in January * Price of U.S. oil increases 0.9% * Canadian bond yields fall across a flatter yield curve By Fergal Smith TORONTO, Feb 20 (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Thursday as evidence of the coronavirus spreading outside of China bolstered demand for the greenback, with the loonie retreating from a near three-week high it hit earlier in the day. At 4:26 p.m. (2126 GMT), the Canadian dollar was trading 0.3% lower at 1.3257 to the greenback, or 75.43 U.S. cents. The currency's weakest level of the session was 1.3270, while it touched its strongest since Jan. 31 at 1.3212. "For me, it is not really a story about the Canadian dollar, it is more about (U.S.) dollar strength again," said Christian Lawrence, senior market strategist at Rabobank. "I think this theme continues. ... the bottom line is people just still want dollars." The greenback rallied against a basket of major currencies and stocks fell globally as South Korea reported a spike in new cases and Japan reported two new deaths, while research suggested the virus spreads faster than previously thought. The price of oil, one of Canada's major exports, rose after the U.S. government reported a much smaller-than-anticipated rise in crude stocks, but gains were capped by worries about the spread of coronavirus outside China. U.S. crude oil futures settled 0.9% higher at $53.78 a barrel. Canada added 25,900 jobs in January, led by hiring in the trade, transportation and utilities and construction sectors, according to a report from payroll services provider ADP. Separate data showed that the Teranet-National Bank Composite House Price Index rose 0.1% in January, paced by gains for the Eastern Canadian metropolitan areas of Hamilton, Ontario, and Montreal. The decline for the loonie came as a blockade of Canada's rail lines dragged on and the economic impact deepened. For the past two weeks, campaigners have blocked rail lines in Ontario, Quebec and Alberta in solidarity with a British Columbia aboriginal band that had stopped construction of a gas pipeline over its land. Canadian bond yields fell across a flatter yield curve in sympathy with U.S. Treasuries. The 10-year yield was down 5.3 basis points at 1.306%. Canada's retail sales report for December is due on Friday, which could help guide expectations for the Bank of Canada interest rate outlook. Money markets see about a 45% chance that the central bank will ease by April. (Reporting by Fergal Smith; Editing by Jonathan Oatis and Peter Cooney)
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